25th July 2025
On Tuesday (22nd July) morning, core infrastructure trust International Public Partnerships (INPP) announced a new investment in Sizewell C, helping finance the construction, development and 60-year operations of a new nuclear plant capable of producing baseload low-carbon electricity that is anticipated to meet 7% of the UK’s forecast electricity needs. We welcome this investment, and particularly the way in which it has been announced by the Board with a strong link to the capital allocation policy that should be common practice across the sector.
The structure of the deal is attractive and in keeping with the low-risk, inflation-linked and availability-based revenue profile of the trust. It enhances key portfolio metrics such as bolstering the long-term return potential, increasing the underlying inflation-linkage, increasing the weighted average life of projects, and extending the ability of the trust to pay a progressive dividend from 20 years to 25 years in 2030. We are also pleased to see that the investment manager has structured the deal in a way that there is no exposure to power price volatility or the demand economics of power generation, and that INPP benefits from enhanced investor protections from construction overrun risks (lessons clearly learnt from Hinkley Point – a project INPP were not involved in) and from more remote nuclear-specific risks.
Just as importantly as all the above, the Board has dedicated a large section of the announcement to INPP’s capital allocation policy. INPP continues to trade at a meaningful discount to its net asset value (around -13% at the time of writing). Since 2023, the Board has been deleveraging INPP through the full repayment of the Corporate Debt Facility and has overseen realisations of £315m from capital recycling initiatives over the past two years. This has provided the ammunition for a £200m share buyback programme, of which £82m has already been deployed. They reiterate that the buyback programme is unchanged and that the market continues to materially undervalue INPP’s shares.
We welcome the transparency with which the decision making of Sizewell C relative to other capital allocation options has been outlined by the Board. We believe this should be common practice for every Board across the sector, especially when shares are trading at a discount to net asset value. The Board confirms that the forecast return over the medium to long-term is significantly above the return implied by a share buyback, outlines the improvement in the portfolio weighted average discount rate and highlights other benefits to the security and duration of the return profile going forward because of the transaction which I’ve highlighted above. Bravo.
There is another angle here that is important too, and that is UK energy security. Everyone will be aware of the massive spike in energy prices in the UK in 2022 as the UK’s lack of energy security was exposed following Russia’s invasion of Ukraine. The UK has an admirable amount of renewable energy generation but needs to supplement this with baseload power that doesn’t rely on the sun shining or the wind blowing. Nuclear ticks these boxes as well as being better for the environment in the long term than burning oil, gas and coal.
The financial news has been dominated in recent weeks by LTAFs, with Chancellor Reeves allowing their use in Stocks & Shares ISAs (see last week’s Crescendo here: https://www.hawksmoorim.co.uk/research/articles/mansion-house-reaction/). This announcement from INPP is a good reminder that there are excellent vehicles already in existence that can put capital to work building important new projects across the UK (and further afield) that will generate attractive levels of returns for investors over the long term. Oh, and they can still be picked up at material discounts to their asset values which further enhances the returns that investors receive. You can’t buy an LTAF on a discount.
Dan Cartridge – Fund Manager
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